While you may think that selling your startup or getting acquired means that prior problems are in the rearview mirror it is quite the opposite. Litigation for events that happened before acquisition can and does happen. This is why it is essential for all startups to have tail insurance coverage in addition to professional liability. Below, the insurance professionals at Unity Insurance discuss the basics of tail insurance coverage and why it is so important for startups.
What is Tail Insurance Coverage?
Things can easily fall through the cracks when your company is focused on scaling up or getting acquired. However, this becomes a problem, not only when it comes to day-to-day, but also when it comes to your risk as you scale up the company. Tail insurance, also commonly referred to as an extended reporting period, extends the period of time to report a claim that occurred during the actual policy period covering your business, such as when a business is acquired, closed, or stops purchasing insurance. The coverage is an addition to a business insurance policy, such as professional liability, errors and omissions, and directors & officers insurance, regardless of where you are in the startup timeline.
While some policies include an automatic extension of 30 to 60 days, longer periods of coverage are available. Costs are typically calculated as a multiple of the last annual policy premium and specified within the general terms and conditions of the policy.
Why Is Tail Insurance Coverage Important for Startups?
Since lawsuits can happen whether your company is at fault or not, tail insurance coverage can be one of the easiest things you can check off your list to mitigate your financial risk.
Just like it is important to be covered after your policy ends, a policy that includes tail insurance coverage is equally important when it comes time for acquisition. There is no blank slate. Just because your company has been acquired does not mean that any previously alleged occurrences go away. Problems from pre-acquisition can pop up as lawsuits against prior founders and even the acquiring company. While the statute of limitation varies, it can be as high as six years. That’s a long time for an early decision your company made to come back and have an effect on the present, especially if the business has already been acquired.
How Does Tail Insurance Coverage Work?
Once purchased, tail insurance coverage can last many years beyond the length of your original business insurance policy and ensures that you are not personally liable following a lawsuit if your business winds down, either by choice or through closure.
While the length of time needed for each business varies, an insurance agent can help you determine how long of a period is right for your business to cover and set you up with the best policy. Reach out to our trusted insurance agents at Unity Insurance to talk through the specifics.
Speak With An Agent At Unity Insurance About Tail Insurance Coverage
At Unity Insurance, we know insurance plays an important role in every stage of your business and we understand the specific challenges that startups and their owners experience. Our professionals provide guidance and support to ensure you make the right decisions regarding tail insurance coverage, professional liability, and other insurance options. We work with our clients to provide the best plan to suit business needs. Call 410-539-6642 to learn how Unity Insurance’s experienced insurance agents can assist you.